RIMM: National Bank Cuts to Hold; Pause in the ‘Product Cycle’ Rally

By Tiernan Ray

The Street today continues to reflect on what may be in store for Research in Motion‘s (RIMM) fiscal Q3 report, due out Thursday afternoon.

The Street is modeling $2.65 billion in revenue and a 36-cent net loss per share for the three months ended in November. Net loss drops to 27 cents if one excludes stock options expense.

RIMM shares today are down 26 cents, or 1.8%, at $13.67.

Today’s dispatches are customarily downbeat, the one most so coming from National Bank Financial’s Kris Thompson, or who cut his rating on the stock to Sector Perform from Outperform, while maintaining a $15 price target on the stock.

Thompson is worried that the recent run-up in RIM stock, based on the the retail introduction of the “BB10” operating system next month, may take a breather while investors digest tomorrow’s results:

RIMM’s stock move over the past three months is product cycle driven. Check out RIMM’s move vs. Apple (AAPL) over the past three months. RIM is entering a material product upgrade cycle. Apple seems to be exiting a strong iPhone cycle; the iPhone 5 is a big let-down vs. previous models. If RIM delivers with the BB10 the stock should move higher; otherwise it’s likely back to US$6. It’s a good time to take some profit ahead of the quarter; we expect a lower entry point is coming. Investors are looking for reasons to sell this stock after such a huge rally. Short interest is at an all-time high (near 25%), RIM’s market share is falling in most countries, the BB10 will require a huge launch hinging on many important partners, RIM’s enterprise base is still months away from a BES 10 upgrade, hardware margins are under pressure across the industry, and RIM’s value-added services fees are under pressure. We still like the product-cycle investment thesis but would wait for the quarter.

Thompson foresees three possible outcomes for tomorrow’s report, based on his belief that “cash is king” as the company heads toward BB10, and the number of subscribers RIM has retained is also important, though somewhat less so than cash:

Thompson’s guess is the sub based loses a million in churn, ending at 79 million, on sales of 6.2 million BlackBerrys last quarter, though he does think it’s possible RIM could surprise him and add a million subscribers. He models average selling price dropping to $200 from $229 and gross margin being “under pressure.”

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There are 9 comments

DECEMBER 18, 2012 12:49 P.M.

Ron wrote:

This can't happen! Fast Money just said their
number one pick is Rimm. It's going to kick
Apple's butt. Oh my!!

DECEMBER 18, 2012 12:57 P.M.

Ron wrote:

All of this commentary is completely irrelevant. The only thing that matters is the new product, and from what we've seen, it looks fantastic. Great reception will lead to sales far above expectations. better technology is always received eagerly, and this will be no exception. Ignore the "market talk" and look at fundamentals, look at the new o/s and devices.

DECEMBER 18, 2012 1:25 P.M.

Anonymous wrote:

National Bank should get out of the business of the stock market if it does not have an appetite for risk. Obviously the commentary herein is based on "fear" and not factual information. Wow National bank, I thought you could do better......maybe you should pack it in and open up a fruit stand where you only need to worry about the freshness

DECEMBER 18, 2012 2:12 P.M.

Anonymous wrote:

Rim has doomed itself so thoroughly successful what's the big deal with BB10 dooming Rim's next quarters? Stop making a big fuzz about Rim's countless failures and certain impending demise and look at the brighter side, Rim is likely going to survive the Mayan 12.12.12 with a 30% chance.

DECEMBER 18, 2012 2:15 P.M.

Anonymous wrote:

Rim's kicking Apple's butt is a tiny ant kicking Mount Everest.

DECEMBER 18, 2012 2:19 P.M.

James wrote:

omg, only a very few Rim trolls genuflecting on their BlackBellys. Are they finally extinct?

DECEMBER 18, 2012 2:23 P.M.

Dom wrote:

Look, I spent all my breakfast money gambling on the rimm stock and now I cashed them in and I am eating blackberry jammed toasts. Don't ask me to gamble on rimm stock no more, I need my breakfasts more.

DECEMBER 18, 2012 2:24 P.M.

Definitely not amateur hour. FACT... wrote:

There better be atronomical Pre Sales. And there better be huge line ups. And if government and enterprise don't re buy Blackberries by the bucket... Dwindling subs. Cash burn. And NOVELTY ACT of 2013.

DECEMBER 18, 2012 3:30 P.M.

2013 wrote:

The CAD aka the Loonie will cut into profits. The central bankers are acknowledging that the currency will fly high... This will also hit Canadian auto sales.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.